How to Plan Your Estate Without Uncapping Property Taxes

How to Plan Your Estate Without Uncapping Property Taxes

In the case of Anderson v. Township of Chocolay, Docket No. 433005 (18 December 2013), the Michigan Tax Tribunal held that neither a transfer of property from a trust into an individual enhanced life estate, nor from an individual holder of an enhanced life estate into an unequal joint tenancy, constituted a “transfer of ownership” according to MCL 211.27a. As a result, there is no uncapping of property taxes upon these transfers.

When Proposal A amended the Michigan Constitution in 1994, the term “taxable value” became important. As mentioned in an earlier post, the State Equalized Value (SEV) is 50% of the local property tax assessor’s “true cash value”. Instead of the SEV being the amount upon which the property owner is taxed, the owner is taxed on the taxable value, which can only increase yearly by the lesser of 5% or the rate of inflation (which is generally much smaller). Thus, over time, the actual true cash value can increase substantially while leaving the taxable value far behind. Once a “transfer of ownership” takes place, the taxable valuable resets at the SEV, which can be a substantial increase in taxes if there have not been any transfers of ownership in many decades.

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